• Too Much Choice (Second Helping)

    So what about retailers? Have they figured out that too much choice can be too much for consumers? A practice called category management has been used by marketers since the mid-90's. There doesn't seem to be anything special about this technique in that multiple brands actively compete for shelf space (in many cases actually leasing it), and the products that demonstrate adequate velocity are retained while low performers are removed. This sounds like an obvious thing that any diligent retailer would do, but without that fancy scanning device now used at larger retailers, category management is difficult.

    So we know that retailers pare down offerings based on how many units they sell. This is not exactly rocket surgery. But, can we say that offering less choice is actually a trend among retailers? Perhaps not, but Trader Joes, that prolific natural/specialty supermarket chain loved by many, has made a business model out of offering a more reasoned store experience. Too many choices, the retailer has decided, is bad  for business resulting in cluttered stores and confused customers. When faced with the burden of too much selection, says Joes, many consumers just say "not now", and besides, a store that understands its customers should be able to offer a few good choices in each product category.

    The fact is that Trader Joes offers around 4,000 products versus about 40,000 in the average supermarket, but due to the retailer's habit of conducting ongoing and extensive customer research, doesn't have an overall perception of being thin when it comes to product selection. Indeed, the 350-store chain enjoys more than double the sales-per-square-foot than does successful rival Whole Foods Markets. Remarkable!

    -DDS

  • Too Much Choice

    Much ado has been made about simplicity over the past few decades. The circa 1990 Boulder-area bumper sticker "Live Simply So That Others May Simply Live" comes immediately to mind, but so does the mammoth growth in products made from fewer (and more naturally-derived) ingredients. Indeed the continued expansion of the natural and organic products sector, now at well over $200 billion in the U.S., owes quite a bit to the consumer idea of living more simply. And there is inherent tyrrany in having too much choice. For example, there are over 500 toothpastes on the market today. Consumers are faced with a mind boggling array of products intended for the same purpose, and there is some evidence that too much choice is not only bad for consumers, but also for both manufacturers and retailers.

    Branded product manufacturers face issues of "cannibalization" every time they introduce a new product. Dr. Pepper, Coke Zero, and Pepsi Max were very carefully positioned for the male diet cola market (then a virtually untapped market), and didn't want to cannibalize the sales of the existing diet products by encouraging females to migrate away from Diet Coke, Diet Pepsi, etc.. Cannibalization is generally a good thing if your product is in decline and you wish to move consumers to another product of yours that meets their needs, but in general, having one product eat the sales and profits of another product is something to be avoided.

    In this vein, it is interesting to note that 7Up's recent creative strategy involves just this. The entire message, which also involves other company brands such as Sunkist, is centered on a drink that both genders can enjoy together. Rather than introduce a male-centered diet product, as the top brands have already done (and they themselves had already done with Dr. Pepper 10), 7Up has decided to direct all consumers (male and female) toward what company marketers think may be a more profitable venture. Perhaps a more unisex option is more preferable in the market after all rather than gender specific products. Either way, it seems that Big Soda is placing bets on newer, better tasting Diet products and in the case of this new diet product, it clearly should be intended to replace the old one.

    -DDS

  • Consumers Clamor For Claims

    One of the most visible and significant new product decisions that marketers must make concern what statements to make on packaging. Since the vast majority of all purchase decisions are made in-store, what the box says can make a big difference in success or failure. We all know that about 80-90% of all new products fail within five years, goods that are unable to gain market share beyond attracting the innovators and early adopters, and so marketers must be very creative. Recall the proliferation decades ago of low fat, low cholesterol, and low sugar claims? Remember the no and low carb craze of a decade ago?

    The latest labeling fad involves the term "protein". It seems that when marketers use it, shoppers recognize it, and are more likely to buy the product. Of course the product must contain protein for marketers to legally make the claim, but the FDA doesn't specify a specific amount unless you are using the terms "a good source of protein" (and then it's 5 grams per serving). Marketers may take liberty with this oversight, for a while, but of there are enough abuses, you can be certain that the FDA will develop an approved claim to go along with a minimum level of protein per serving. Ultimately claims must not be false or misleading, but it's up to the FDA to prove its case. Remember that the halo effect figures into this case. Use of a term that connotes "healthy" and consumers will think that the product itself is inherently healthy.

    Labeling fads come and go, and some (such as Natural and Certified Organic) are here to stay. Other up-and-coming terms include, GMO-Free, Fair Trade, Hormone-Free, High Fructose Corn Syrup-Free and many others. As long as the claim is true, the FDA isn't likely to make any noise.

    DDS

     

  • LED's Illuminating Proposition

    Traditional light bulbs will be replaced by the vastly more efficient LED bulbs within seven years, according to industry experts. But, these bulbs are expensive, you say. Who wants to pay $15 for a light bulb? That was so yesterday. Today these bulbs are actually down to about $10 for the equivalent of a traditional 60 watt bulb, and as the industry floats along the learning curve, costs will fall and quality will improve. The technological environment is dynamic, to say the least.

    Within two years this same bulb is expected to cost about $5, and within four years it will be about $2.50. This bulb will last more than 25 years and will use 85% less energy. Not only that, but once light sockets have been digitized (and they will be digitized), consumers will be able to change the room's ambiance, operate climate control, centralize functions such as security alarms, act as a wi-fi hotspot, and all kinds of other uses. Welcome to the future folks!

    -DDS

  • Clicks Also Using Bricks

    Around the turn of the last century, it became very clear that having an internet e-commerce presence was an imperative for traditional retailers. Thus, it was no longer good enough for retailers to offer products only through physical brick-and-mortar locations or direct via catalogs, broadcast, or print media. Now most large retailers have some form of what is called a "multi-channel strategy".

    The interesting thing here in 2013 is the proliferation of so-called "pure play" online retailers that are now finding it advantageous (and perhaps necessary) to open up traditional shops. Bonobos, an online men's clothing retailer now has brick-and-mortar locations. Kiddicare, Screwfix, Zalanado, and other global players have all made the leap into operating more complex and costly retail formats. And it is no secret that Google is planning a huge rollout of stores to leverage the incredible equity inherent in the brand.

    What is driving this? Primarily, it's the integration of the consumer buying experience that is at fault. Consumers increasingly shop from home, from their mobile devices, and in physical stores. This means that retailers no longer have the luxury of choosing which store formats suit their own needs. The consumer runs things these days, and so retailers must increasingly be where the consumer wants to buy. And it's not just brick-and-mortar retailers that must embrace multi-channel marketing anymore. It's also the other way around, and a failure to recognize this simple truth can result in a failure of the business model.

    -DDS

  • Will Oracle's Future Dim?

    Oracle Corp., an industry stalwart and first mover with $37 billion in revenue, has been a juggernaut in the information technology sector for many decades. The information management/database pioneer has sinced made forays into a variety of different technology sectors, creating a portfolio of products unmatched in the industry. But all is not well at Oracle headquarters with the company blaming a recent slowdown on internal problems.

    It also appears that smaller, more nimble, players have emerged of late, have been nipping at the tech giant's heels and now offer competitive products with better functionality at a better price. Uh oh. And it's not as if Oracle has been resting on its laurels all of thes eyears. It has acquired several billion dollars worth of cloud computing companies in the past few years, but has failed to keep enough of their customers. An expanding market for data storage almost guarantees that strong competitors will emerge, and Oracle has had three disappointing quarters in the past two years.

    One thing is for sure, CEO Larry Ellison doesn't like to lose and will most certainly be watching this situation develop. Lessons learned from brands such as Kodak, JC Penney, and Kmart should keep strategists on their toes lest the market change should catch them unprepared.

    DDS

     

  • Blackberry Rolls Uphill

    To say that Blackberry, the rather slow-to-market Canadian smartphone manufacturer, is facing an uphill battle with its dramatically tardy Blackberry 10 models would be a gross understatement. The former first mover and market leader (formerly named RIM) hasn't introduced a product in a few years, and has failed to maintain pace with changing consumer preferences and advancements in technology.  The two new products, one with buttons and one without, have garnered moslty positive reviews and are backed by the largest marketing budget Blackberry has ever allocated.

    Anyone buying that the company has a prayer? The budget, although large for Blackberry, dwarfs what Apple and Samsung, the companies with most of the market share, spend on an annual basis. In addition, the brand has lost much of its appeal and really hasn't been cool for a while. It is also two months late to market, and Blackberry has lost even more of its customers. Despite all of this, investors are confident that, while it can never regain even a modicum of the company's earlier market share, Blackberry may at least occupy a much smaller third place in a market that needs to foster more competition. Ultimately, having only two choices are what we call a duopoly, and this sort of future does not bode well for consumers.

    Let's see what happens. I am rooting for Blackberry over Microsoft in this match-up, and I'll be on my way to the Verizon store to pick one up today (or maybe tomorrow). I've been without a phone for about five weeks now and am looking forward to a more reasoned relationship with the device. And I'll be buying the one with buttons no less.

    -DDS

  • Next Day? So Passe

    Not terribly long ago, someone would call FedEx (also known as "Federal Excess" to the more cynical observer) when the package absolutely, positively had to get there overnight. It was expensive, but effective. Those days gave way to FedEx competing more directly with UPS' more ground-based business model, which took more than one day. Eventually a few dominant players, including the USPS and DHL offered a variety of pricing structures based on speed of delivery and volume.

    These days, not much has to get there overnight, and the substitutes now include ships, commercial airliners (which have extra capacity) and third-party shippers, so profits at FedEx have plummeted. The shipping business has changed, and FedEx must change with it. Add to all of this a pervasive global economic slowdown, and businesses are forced to cut costs.

    Business preferences are unlikely to revert back any time soon, if ever, and technology makes it increasingly less important to send things like contracts and checks. Perhaps another change in the marketing environment will stimulate volume again (as happened when Amazon and Ebay took off). There will always be a need for next day delivery in some regard, such as with sushi for example. But I think most of that stuff comes in on commercial airliners. Shippers take heed!

    DDS

  • Fake Fur Fiasco

    The Federal Trade Commission has settled with Neiman Marcus and two other clothing retailers over allegations that said retailers made false and misleading claims about coats featuring fur. But, this isn't a case where a company markets a fur coat as real, and then it turned out to be fake. Oddly enough, this situation is the other way around. In other words, if the fur is marketed as fake, then it had better not be real!

    Why would a marketer do this? It turned out that the products were properly labeled, but the retailers' advertising communications claimed that the fur was not real. The two kinds of fur apparently involve completely different supply chains and require much different equipment in their manufacturing, so the real and the fake would be pretty hard to confuse. And many consumers are anti-fur (of the real kind), but are OK with garments lined with faux fur. Wearing real rabbit fur, for example, might give a vegan a heart attack or expose her to public ire!

    Was this just a mistake? Was it another example of a supply chain "disconnect"? Was it a disconnect between product development and marketing? Was it willful on the part of the accused companies? We may never know since the accused settled with federal regulators, but this is clearly yet another example of how important it is for a marketer to monitor the supply chain for gaps in communication. Anyone who has played the game "Telephone" knows that it's possible for there to be gaps between R&D, product development, manufacturing, and marketing. It's up to the person in charge of the 4 P's to identify gaps and minimize these risks.

    DDS

  • Seeing Through Lululemon

    Never mind the brand nomenclature that must have some deep hidden meaning to someone. Lululemon, purveyor of  high end yoga apparel for the self-actualizing well-to-do, is having serious quality control problems which are having a major effect on the brand's reputation. The company is blaming its contract manufacturer in Taiwan for pants that are inappropriately "see through", but the supplier made the statement that the clothing shipped was not "problematic". This translation might be shaky, so it's difficult to know what that really means. The problems could very well be in the design of the product and its specifications.

    Unfortunately for the billion-dollar Canadian manufacturer, the brand's reputation and thus its' brand equity is at risk. This admission follows a series of complaints last year that colors on some sku's were bleeding, as well as problems with an unrelated line of swimwear. High end products simply cannot have such quality issues, and it seems likely that the contract manufacturer is underperforming here, but we cannot be sure. One thing is for certain, however. Lululemon is responsible for what its contract manufacturer does, and this is an important lesson regarding the risks of outsourcing. Doing so may be efficiant and convenient for the marketer, but the loss of control over the manufacturing process can be devastating if problems arise.

    DDS 

  • Twinkie The Kid Rides Again

    Folks my age remember the ad campaign in the 80's featuring Twinkie the Kid, a spokescharacter for the now defunct Hostess brand. Although he has been "temporarily between assignments" for several months, no one thought he would be unemployed for very long. Despite the fact that Hostess was unable to stay solvent, brands like Twinkie, Ho-Ho, Ding Dong, and Dolly Madison have tremendous brand awareness and therefore good brand equity. You don't just throw opportunties like that away. 

    We now have a winning bid in the auction for the iconic Hostess brands, and so you can expect to see your favorite sugar bomb on the shelves sometime this year. Will the new Twinkie be healthier than the old one? Is this an opportunity to address the obesity epidemic with innovative product development? Don't bet on it. The new Twinkie should be exactly like the old one in terms of taste. Of course, it could be time for some packaging and logo changes, but there shouldn't be any immediate change in the taste of the product, as it is important that loyal consumers get "the same old Twinkie". However, expect that the new owners will attempt to leverage the brand equity in Twinkie (and other well known brands) by introducing additional Twinkie-branded products. Perhaps one of those will be healthier. We shall see.

    -DDS

  • Samsung's Challenge

    The latest Samsung smartphone is an excellent product, and it's easy to see why Samsung has at least temporarily surpassed Apple in market share. Yet all will not be well for long at Samsung without significant innovation. Like Apple, Samsung has been burdened with very high market and industry expectations, so the challenge for the company's fourth-generation device is to continually impress consumers at the level to which they have become accustomed. One can only make a phone so light, a screen so large, a processor so fast, and a camera so sharp before the innovation tree stops bearing fruit.

    In order to remain at the forefront of the market, companies must continually develop new products based on existing product platforms, as well as develop new technologies through research and development. Continuous innovation is nice, and is necessary in an industry where gadgets are replaced every two years or so, but eventually a marketer must product a dynamically continuous product, or even a groundbreaking discontinuous product. Can Samsung keep up?

    Apple has clearly faltered a bit, but the company could rebound with the right kind of invention. The big question involves whether they have such an invention in the works. The same can be asked of Samsung, a company that has positioned its products as the hippest available and has painted Apple as a brand for older people and mindless fad followers. This has been an effective creative strategy, but in many ways Samsung has set a very high bar for itself. Let's see if it can deliver.

    DDS

  • Consumers Show Resilience

    Good news for marketers! Retail data from February were very encouraging, as more consumers made the decision to spend a bit more and save a bit less. Income levels are still fairly flat, so the money has to come from somewhere. Where does it come from?

    Tax refunds. Although delayed a bit this year, many consumers are receiving their annual windfall and they are spending it! Internet sales were up, but bars, restaurants and sporting goods retailers saw a decline. necessities were up. Pent up demand explains some of the spending increase, but it seems that February was more about essentials and less about discretionary items. Nevertheless, a 1.1% level of growth indicates that this could be a much better quarter than the last, so talk of recession seems unnecessary at this point.

    Due to this report, some estimates of our Gross Domestic Product have doubled to 3% from 1.5%, and if this is correct, manufacturers should begin ramping up production soon to meet increasing consumer demand. Hopefully hiring will also increase, which will provide more consumers with more spending money, and perhaps more of these jobs will be higher paying manufacturing positions rather than lower paying retail ones. Nonetheless, it is important for marketers to remember how so very important economics is to every marketing decision we make. Let's hope this report is an indication of a healthier marketing environment where people can consume goods and services with more vigor than they have over the past 6 years.

    DDS

     

  • The Rise of The OS

    Operating systems. They're not just for Apple and Microsoft anymore. The rise of Android, an open source operating system used by Google and others, and the success of the Samsung device has been well documented. Indeed Samsung recently eclipsed Apple in terms of market share in just a few years. Microsoft, a bit late to the mobile game, introduced their Windows 8 system, and Blackberry is still hanging on with Blackberry10, their first product introduction in a few years. Both of these brands have excellent brand awareness, but Apple and Google represent 90% of the market by themselves. So Blackberry and Microsoft could make a big play, but what about some of the newcomers? is there room for more competition?

    Luckily the technoscape is constantly changing and consumers can rapidly shift preferences (see the rise of the tablet). Instead of letting Godzilla and King Kong fight it out on Monster Island, companies like Mozilla, Jolla, and Ubuntu are entering the marketplace with offerings of their own. But how can these companies compete with the market leaders? The answer lies in the growth of the market itself. Interestingly enough, smart phones only account for 17% of the world's mobile subscriptions. Thus, there is plently of room for new players, especially in a global setting. Smaller firms are more nimble and are often better able to adapt to changing market conditions more readily and effectively than larger players. Plus one these companies may be working on the "next big thing".

    Time will tell, but one thing we do know is that a healthy degree of competition is good for consumers, resulting in higher quality, lower prices, and more alternatives. Let's see if someone can unseat one of the market leaders.

    DDS

     

  • Music on The Mend

    According to a report released by the International Federation of the Phonographic Industry (time for a new name?), the music industry has officially posted positive growth for the first time in 13 years. Another example of the "creative destruction" caused by the internet and the advent of digital technology, the music industry was rendered unrecognizable over a decade ago by the rapid changes in technology and consumer behavior. CD's priced at $14.99 became easier to copy, share, and steal. In addition, sites like iTunes made it easy to buy one good song for less than a buck, rather than having to purchase an entire album full of less-than-desirable material. Many other have factors contributed this perfect storm.

     

    Alas, digital sales rose 9% last year, in part due to the fact that the industry has discovered ways to make money on the internet, rather than continue the futile fight against the inevitable consumer shift to digital music. Download stores now represent as much as 70% of digital revenues, and the consumer adoption of streaming services, which pay a royalty each time the song is played, have also helped matters. Apps for smart phones have made music even easier and more convenient to access.

    The industry is not out of the woods yet, as physical music still represents the majority of revenue, but the posted growth rate probably means that the industry has turned the corner and will begin growing again on an annual basis. Music lovers rejoice!

    -DDS

  • Retailer Data And Accuracy

    The latest report from U.S. retailers showed slow growth for February and experts largely blame payroll tax increases, which hit the majority of tax-paying households this year, for the lack of consumer spending. This poor showing is occuring despite the fact that the housing market continues to improve, largely the result of very low housing supply, and the stock market continues to roar, largely a result of very low interest rates which make other investments less attractive. The retail sector is growing about half as rapidly as the same period last year. This is not a very good sign for marketers of consumer goods (unless other factors in the marketing environment made this February somehow different than last), but how accurate is this data?

    A closer look reveals that only 11 retailers still report what is known as "monthly same store sales", a report that has been a very good indicator of economic and consumer health. Wal Mart, Target, and Kohl's, among a host of others no longer participate, which makes the data sample much smaller than is desireable. But does this mean that the data is not reliable or valid? No. Eleven retailers is still a decent sample as long as the stores are large and national. Most surveys of the general population (310 million people) only consist of a (perfectly-acceptable) few thousand responses, so 11 major retailers are probably still a good sample.

    This type of data is an important tool for marketers, especially in regard to sales forecasting, which affects how much of an item manufacturers make and how much of an item a retailer stocks. Too much or too little inventory can be a killer, so marketers try to avoid this "bullwhip effect" through more accurate forecasting. I am surprised that publically-traded retailers aren't required by law to post monthly same store sales, since this measure is a more timely indicator of what consumers are doing than waiting for quarterly and annual reports. For now, this is the best data we have, and we are compelled to use such data to make strategic decisions whenever possible. We can only hope it is pointing us in the proper direction.

    DDS

  • App War Heating Up

    While a great many independent developers have made a great deal of money from marketing highly useful apps over the past few years, it appears the window of entrepreneurship is beginning to close. Now that there are hundreds of thousands of games, tools, and other apps already on the market (Apple alone offers 800,000 apps), many start-up companies are beginning to discover that their product concepts are either already on the market or aren't as useful as predicted. Apps must now get thousands of downloads a day to be considred a top apps versus hundreds just a few years ago.

    The industry life cycle for the app product category has been short. as it appears to have already passed through the growth stage and is headed toward maturity. Indeed only 2% of the top 250 publishers for iPhone apps are newcomers to the market. Larger players are better funded, have better infrastructure, enjoy more expertise, and operate in more developed distribution channels than do start ups, which makes it difficult  for newbies to penetrate the market and is a major sign that the category is maturing. In addition, users have become more savvy, and so it is not only more difficult to reach them, but also more difficult to impress them.

    What does all of this mean for apps? Not much for now. since there are enough larger players in the game to keep things interesting. The occasional newcomer will appear with a groundbreaking product, but for the most part big publishers will rule the future. A mature industry isn't bad for consumers as long as there is enough competition to foster innovation and meet consumer specifications.

    DDS

     

  • The Edsel

    In 1957, this was supposed to be the revolutionary car of the future. The Edsel. Classy look. Innovative design. Cutting edge mechanical features. Big marketing campaign. Failed product.

    Ford projected sales of over 200,000 vehicles per year, but for reasons that are unclear over 50 years later, only 100,000 Edsel models sold over its brief, three-year product life cycle. What happened? Critics, who were apparently very numerous and very vocal, compared the vertical grille (the car's most distinctive element) to a horse collar and a car sucking a lemon. Early models also had reliability issues. The kiss of death? An economic recession that put a damper on consumer appetites for new vehicles. Indeed, this perfect storm of factors was simply too much for Ford to bear, despite the fact that the crowd issued a standing ovation when the first clay model of the vehicle was unveiled. I would also postulate that the brand name wasn't a very good decision. After considering almost 6,000 names, the car was named after Henry Ford's son, Edsel. This isn't exactly a compelling brand story.

    Obviously, the marketing environment wasn't very competitive in those days, and marketing professionals were focused on advertising and selling rather than the four P's. Things have changed since then, but even in today's research-laden environment, this new product could have failed. Consumers often don't do what they say they are going to do, and there are a number of uncontrollable factors in the marketing environment that affect success. The Edsel was an early lesson and there will be many more to come.

  • Hollywood Serves Up Another Dud

    The "creative malaise" afflicting Hollywood, which has resulted in lower ticket sales over the past few years, continues. Over-reliance on movie franchises with multiple installments (such as Harry Potter), an overabundance of super hero-themed flicks, and most recently a focus on fairy tales has put a damper on the traditional "blockbuster" movie. The latest casualty is "Jack the Giant Slayer", which garnered only $28 million in its first weekend. For a movie that cost $200 million to make and $80 million to market, this is not good news. Unless the international audience is more keen to see the flick, the movie will likely lose plenty of money.

    One of the ways that a movie can hedge its bets, so to speak, is to infuse it with product placements. One of the James Bond movies from the late 90's actually paid for the entire production with product placements, so the revenue generated from ticket sales was essentially gravy. Obviously it's more difficult, and sometimes impossible, to place products in movies that have a fantasy theme. Most products simply can't fit in a fantasy setting.

    Well, at least "Jack" is doing better than two other movies that were released in the U.S. and Canada over the past weekend. 21 and Over and The Last Exorcism Part II (oh the irony in that name!) both failed to break the $10 million mark. It seems that Hollywood is going to have to find ways to re-discover the creativity that made it great in the first place. As consumers shift to watching movies at home as well as high quality entertainment generated by the AMC's and HBO's of the industry, this will become an imperative that executives would be wise to heed.

    -DDS

  • It's The Water!

    You gotta love Budweiser. Not only did the beer giant produce what was arguably the best Super Bowl ad (the one with the Clydesdale and the trainer), but the company has also responded to what could have been a major brand image crisis with an effective volley of newspaper ads. Here is the short story.

    In response to a highly publicized lawsuit that accuses Bud of watering down their brew, the company placed full page ads in U.S. newspapers nationwide last Sunday. In one ad, the company shows an image of one of the 71 million cans of drinking water it has sent to the Red Cross and other disaster relief agencies over the past years asserting, "They must have tested one of these." This is a very clever response to a potentially damaging assertion about the quality of the product and the integrity of the organization. The fact that the company was able to use the issue of water to its advantage (through highlighting its cause related marketing strategy) is nothing short of creative genius. And the response was quick, so there was little time for competitors to react.

    Bud isn't out of the water yet, so to speak, but as far as damage control goes, this is about as good as it gets. let's see where, if anywhere, this lawsuit goes.

    DDS